BERLIN, July 1: The European Union’s executive arm Tuesday issued a blunt warning to Germany not to overstep euro-zone rules on the financing of a multi-billion euro tax relief package.

EU Economic and Monetary Affairs Commissioner Pedro Solbes, who was due to meet Germany’s finance and economy ministers later Tuesday, said the tax cuts were “an important building block” but not the main priority.

Implementing structural reforms is the decisive issue, he told the daily Berliner Zeitung in an interview.

Solbes said he wanted to learn more during his brief trip to Germany on the government’s broad social and economic reforms, and on how it expects to keep its budget to within euro-zone limits. The commission has concerns, Solbes added.

The German figures more or less fit, but there are risks and uncertainties and it’s unclear how the reforms will be implemented.

Another uncertainty is whether the German economy will really grow by two percent in 2004. Our estimates suggest that it is possible, but also a little optimistic.

That’s why we are waiting and watching. The commission is always ready to act, but the aim is to intervene as little as possible.

Chancellor Gerhard Schroeder announced Sunday that he would bring forward a tax relief package originally planned for 2005 by a year.

It will cost around 18 billion euros ($20.5 billion), but Schroeder insists it will spur growth in Europe’s biggest economy, now in its third year of stagnation.

Doubts remain as to whether the cost of the tax relief will overburden the budget, sending the deficit spiralling upwards, but Schroeder appears willing to take that risk.

Under the European Stability and Growth Pact, euro-zone governments must not allow their public deficit to exceed 3.0 per cent of gross domestic product, and aim for a balance or even surplus in times of economic growth.

Germany’s deficit shot up to 3.6 per cent of GDP last year and looks likely to exceed the ceiling again both in 2003 and 2004.—AFP